updated 7/17/2008 2:13:55 PM ET 2008-07-17T18:13:55

Despite reporting better-than-expected results for the second quarter, JPMorgan Chase & Co. said Thursday that it expects continued deterioration in its home equity, subprime and prime mortgage portfolios through the remainder of the year.

The bank also expects losses of about 5 percent or more in the second half of the year in its card services division, as pressure on charge volume continues and outstanding balances grow, according to materials provided during the company's conference call.

Additionally, JPMorgan expects continued earnings pressure at its investment bank — after it marked down the value of the bank's holdings by $1.1 billion in the second quarter — noting balance sheet risks. JPMorgan lost more than half a billion dollars due to Bear Stearns Cos., the ailing investment bank it bought in March with the help of the government.

The integration of Bear Stearns is expected to cost JPMorgan another $500 million, after taxes.

53 percent profit decline
JPMorgan Chase earlier reported a 53 percent profit decline as defaults rose in mortgages and other loans, but the bank's results were better than the market anticipated.

The bank's shares gained about 5 percent in pre-market trading. On the heels of Wells Fargo & Co.'s stronger-than-expected results released Wednesday, investors appear more confident that the banking sector, while struggling, will be propped up by some of its healthier players.

JPMorgan Chase & Co. earned $2.00 billion, or 54 cents per share, in the April to June period, down from $4.23 billion, or $1.20 per share, in the same timeframe last year.

Analysts surveyed by Thomson Financial had predicted, on average, a profit of 44 cents share.

JPMorgan Chase took a nearly $3.5 billion provision for credit losses, and lost more than half a billion dollars due to Bear Stearns, the ailing investment bank it bought in March with the help of the government.

JPMorgan gets a boost
But hardy growth in the business of providing traditional banking services and loans to individuals and companies around the world gave JPMorgan a boost. The commercial banking and Treasury & securities segments both saw record earnings and revenue.

JPMorgan marked down the value of its investment bank holdings by $1.1 billion, and bulked up its reserves by $1.3 billion. The bank's total allowance for future loan losses now stands at $13.9 billion.

"Our expectation is for the economic environment to continue to be weak — and to likely get weaker — and for the capital markets to remain under stress," said JPMorgan Chase Chief Executive Jamie Dimon in a statement. "We remain conscious that since substantial risks still remain on our balance sheet, these factors will likely affect our business for the remainder of the year or longer."

Dimon added, however, that because of the bank's strong capital base, it "can continue to invest for the future."

Stock down about 28 percent
JPMorgan Chase shares rose nearly 5 percent to $37.63 in pre-market trading. The stock is down about 28 percent over the past year.

In a note to clients, Deutsche Bank analyst Mike Mayo said that JPMorgan's outlook was "more subdued," but that "JPMorgan showed this quarter that it is one of the few financial firms that are playing offense and showing revenue growth while many others are not."

Chief Financial Officer Mike Cavanagh said during a call with reporters that credit trends in prime mortgages, subprime mortgages and home equity loans are all deteriorating. He said, though, that there is "some slowdown in the pace of deterioration of home equity."

In May, JPMorgan closed its acquisition of the 85-year-old Bear Stearns. The deal was worth a total of $2.3 billion: JPMorgan spent $1.4 billion for the firm itself, and an additional $900 million buying up Bear Stearns stock to ensure the deal's approval.

JPMorgan's tier-1 capital ratio — essentially, a company's capital versus its debt — was at 9.1 percent at the end of the second quarter. Cavanagh said that without the U.S. government's temporary debt relief for Bear Stearns, that ratio would be at 8.1 percent.

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